Lower coal prices drag on Exxaro

LOW international and domestic coal prices coupled with lower volumes would result in lower operating profit from the coal business of Exxaro Resources in the year to December, compared with a year earlier, the diversified mining company said in a trading statement on Friday.

The stock closed 2.46 percent lower at R154.45 on the JSE on Friday as the market reacted negatively to the news.

“When compared to the previous corresponding period, headline earnings a share are expected to decrease by at least 20 percent, whereas attributable earnings a share are expected to increase by at least 20 percent,” the company said.

Analysts said Exxaro’s forecast for lower profits was expected as producers had been reeling from weak demand from Europe and rising input costs, including wage increases and electricity price hikes.

“Weakness has been the name of the game for everything in commodities in the last few months,” an analyst said.

Exxaro, which opted to pull out of the pre-emptive right for a 30 percent interest in Coal of Africa’s Makhado project in October, said on Friday that it expected income from its equity-accounted investments to decline from last year, because of lower export iron ore prices coupled with an expected decline in the profits of the Sishen Iron Ore Company investment, as recently announced by Kumba Iron Ore.

“The recent announcement by [Kumba] of an expected decrease in earnings for the 2012 financial year by at least 20 percent, coupled with the historical trend of Exxaro’s performance linked to [Kumba], leads Exxaro management to expect a lower investment income from this investment,” it said.

The company also said the operating profit contribution from its Tronox investment was expected to be lower than the second half of last yearas a result of reduced demand and lower commodity prices, mainly zircon and pigment.

Consolidated net operating profit was expected to increase, mainly due to the profit on the sale of non-core assets.

Labour unrest, which started at Lonmin’s Marikana platinum mine in August and spread to gold, coal and iron ore mines, has had a significant impact on the mining industry.

According to a PwC study on trends in the top 10 listed mining companies by market capitalisation, six have posted profit declines, with Exxaro, Anglo American Platinum and Kumba Iron Ore collectively losing R40 billion in profit.

The company said it would release its audited financial results for the year to December on March 7 next year.